The EU is acting hysterically – no wonder it has lost its superpower status

 The EU's impotence against Joe Biden's protectionism shows its influence is waning

Source - Daily Telegraph 19/01/23

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The European Union's advocates claim it is the world’s regulatory superpower. 

They argue that sheer size of its market means that no one can ignore it - and its negotiating skills means that it can steam-roller other countries into accepting its terms. 

The EU makes a big deal of its influence in the world. Its heft and weight is sold as one of the key benefits of membership - and one of the big losses for the UK now that we have left.

Yet over the last few months, the EU has been waging a furious war against President Joe Biden’s nakedly protectionist subsidies and tariffs. 

At Davos on Wednesday Germany's Chancellor Olaf Scholz threatened a full-scale trade war with the US, joining a chorus of complaints from European leaders. And the result? Nothing. The United States has simply shrugged it off, and possibly hasn’t even noticed. 

There is an important lesson in that. The EU’s power as a trade bloc is fading fast. A few officials in Brussels might still think it matters - but to everyone else it is increasingly irrelevant. 

Over the last few months, the EU has been waging an increasingly hysterical campaign against Biden’s subsidies and tariffs designed to turn it into a globally dominant force in green energy. 

President Joe Biden's Inflation Reduction Act has launched most ambitious industrial strategy the US has attempted in years CREDIT: Nathan Howard/Getty Images

The oddly named Inflation Reduction Act, which didn’t seem to have much to do with inflation and certainly not its reduction, committed the US to spending $375bn (£300bn) on green energy. It included clearly protectionist measures such as a $6,000 subsidy for new electric cars so long as they were made on American soil, and bungs to energy companies bringing wind and solar power online.

Add in its restrictions on exporting semiconductors and other high-tech products and the Biden administration has launched the most ambitious industrial strategy the US has attempted in years.

"Local content requirements for certain products must not result in discrimination against European businesses,” Chancellor Scholz told his audience in Davos. "Protectionism hinders competition and innovation and is detrimental to climate change mitigation.”

As France’s president Emmanuel Macron and European Commission president Ursula von der Leyen have rightly complained, the strategy is clearly unfair. It twists global trading rules, and damages Europe in particular. 

The Germans are huge manufacturers of luxury electric cars, and the French are investing billions of euros in battery production. It will be hard for European companies to compete for American customers over the next decade, and if they can’t take a slice of that market they won’t be able to compete globally. 

True, it is a little rich coming from the French in particular (the country that gave us the Common Agricultural Policy and the subsidy-machine with wings known as Airbus) to complain that trading rules are being broken. But the point they are making is fundamentally a reasonable one. The EU is being frozen out of the green energy markets. 

All manner of retaliation has been threatened. French and German politicians have made speech after speech condemning American policy. It has launched its own "Chips Act", pouring more than 40 billion euros (£35bn) into building its own semiconductor industry. 

The hyperactive Competition Commissioner Margrethe Vestager has taken a break from issuing huge fines to Amazon and Apple to propose suspending competition rules to allow member states to subsidise national champions. And it has threatened tariffs against American products. It has been made very clear that Europe will do everything in its power to make Biden change course. 

But there is no sign that the US will back down, drop any of the subsidies, or make even the slightest move to make sure there is a level playing field between American and European companies. 

It does not appear to have been troubled at all by the threats coming out of Europe. A weary shrug, and quickly everyone moves on, is the most that is likely to happen. 

For the EU, that is surely worrying. One of the major benefits of membership, as hardcore Remainers never tired of telling us during the referendum campaign, was that it was the world’s dominant trading bloc. 

It made the rules that everyone had to follow. It had the weight to negotiate any deal it wanted because the Single Market was so huge and so important that no one could ignore it. And it gave countries that would otherwise not matter very much a seat at the top table. 

Perhaps once upon a time that was actually true. In 1980, the EU by itself accounted for 30pc of global GDP. It is now down to just 15pc. Measured by total output it is smaller than the US, and, as of last year, it is smaller than China as well. In key industries such as semiconductors, it accounted for more than 30pc of global output at the start of the century, yet it is now down to less than 10pc. 

On any measure you care to look at it is sinking into irrelevance (as of course is the UK in terms of global economic influence). 

That is partly because China, much of Asia, at least half of Africa, and indeed the US as well, have all been growing much faster. And it is partly because its over-bearing regulatory system, and the massive size of its welfare bill, have slowed down its leading companies to such an extent that they can barely compete on the global stage any more. 

Whatever the explanation, the result is the same. A market that accounted for a third of global GDP mattered to everyone. But one accounting for an eighth, and getting smaller with every year that passes? Not so much. 

A few officials in Brussels might still imagine it is a regulatory and trade superpower, able to order about other countries, and demand changes whenever it needs them. And yet the failure to extract any concessions from the Biden administration illustrates how that is no longer true. 

The evidence tells us that it has little influence left - and no matter how many threats it makes, no one will pay any attention.